ABSOLUTE gUIDE sERIES to Investment Property
Panama
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Date of Publication: November 2008 © Obelisk 2
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Contents 5. Welcome to Panama
Dedicated to providing impartial information.
6. Economic Growth & Stability
Panama was one of the fastest growing economies in the world in 2007.
7. Currency & Banking
Panama’s banking sector is one of the most dynamic areas of the economy.
8. Foreign Investment
Between 2005 and 2007, FDI in Panama represented an average 17.5% of GDP.
9. Political Situation & Stability
Panama is a stable democracy and a presidential republic.
10. Tourism
More than 1 million tourists visited Panama in the first 9 months of 2008.
11. Infrastructure
A major infrastructure project is the expansion of the Panama Canal.
12 - 13. Property Market
Panama has been experiencing a property market boom since around 2003.
14 - 15. Secondary Market There is huge demand from North American retirees for both resale and rental properties.
16. Mortgage Market
Due to increased demand, mortgages are available for foreigners.
17. Market Risks
Panama represents some issues for foreign investors.
18. Purchase Process
Properties are either titles or only have “possession rights” (derecho posesorio).
19. Investment Costs
Buying costs are relatively low in Panama.
20. Summary
Panama has one of the fastest growing economies in the world and has a booming tourist industry.
21. Verdict
The Panamian property market has seen excellent growth recently and shows no signs of slowing down.
22. Obelisk Advantage
Obelisk approaches its projects purely from an investment perspective.
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Bocas del Toro
Colon Cristobal
David
Santiago
La Palma Santiago
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El Porvenir
Coco Solo
Chitre
Yaviza
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Panama forms part of the Obelisk Absolute Guide Series, dedicated to providing impartial information about numerous property investment destinations worldwide.
Welcome
to Panama
As the market leader for overseas investment property,
with in-depth, clear-cut knowledge on the most important
we are committed to providing cutting edge information
factors influencing your property investment decision in
for property investors, one aspect that has earned us the
Panama.
award of International Property Specialist 2008 by Business Britain magazine.
In this guide you will find recent economic performance and predicted growth, a profile of the current property
We are therefore pleased to present our latest Property
market and its future potential, along with tourism trends
Investment Guide to Panama, an essential tool for the
and infrastructure improvements. The guide also includes
investor planning to buy property in this country. This
information about Panama’s mortgage market, the buying
guide forms part of the Obelisk Absolute Guide Series,
process and buying costs.
dedicated to providing impartial information about numerous investment destinations worldwide.
Obelisk’s Absolute Guide to Panama offers investors objective and authoritative information to facilitate an
At Obelisk, we are only too aware of the importance of
informed decision about investing in Panama. We trust
extensive research into an investment destination and, as
that you, as an investor, will find this guide indispensable.
part of our policy to offer investors the definitive service, this guide has been rigorously researched to provide you
Here’s to Successful Investing!
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GDP Growth (Q2 2008): 11.1% GDP Per Capita: US$10,700 Inflation (Sept 2008): 10% Unemployment (March 2008): 6.3%
Economic Growth
& Stability According to the International Monetary Fund (IMF),
Employment has expanded significantly leading to
Panama was one of the fastest growing economies in
unprecedented low unemployment levels of 6.3% in
the world in 2007 with real growth rising to 11.2%,
March 2008.
following an average growth rate of nearly 8% from 2004 to 2006. GDP growth for Q2 2008 was 11.1%.
Although economic growth between 2008 and 2009 is projected to slow to around 8%, the Canal expansion
Panama depends on its well-developed services sector,
and related investment activities will partially offset the
which accounts for around 80% of GDP and is centred
effects of higher oil prices and the slowdown in the US
around the Panama Canal, the related Colon Free Zone
and the global economy. Like in the rest of the region,
and the International Banking Centre. It is predicted that
inflation has accelerated, reaching 10% in September
the Panama Canal expansion, which began in 2007,
2008, after averaging about 1.5% in recent years.
will have a profound effect on the economy and a
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boom is predicted due to increased foreign investment
Standard & Poor’s give Panama a BB+ (stable) rating
and employment in the Canal expansion and related
indicating the country may possibly be prone to
projects.
changes in the economy.
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Currency
& Banking Panama’s currency is the balboa (PAB) which has parity with the US dollar. Panama mints its own coinage, but uses US dollars as paper currency. There is no Central Bank and interest rates are linked to the US. Despite this, Panama has not been adversely affected by the US economic crisis. It is the most developed country in the region in terms of financial services and its banking sector is one of the most dynamic areas of the economy. A new banking law enacted in March 1998, modernised the banking system and increased government supervision. According to the IMF, the banking sector has recently been strengthened by increased foreign investment, consolidation and regional integration.
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Foreign Companies Investing in Panama Continental and American Airlines, Dell Computer, DHL, Federal Express, Kansas City Southern Railways, Telef贸nica
Foreign Investment Foreign direct investment (FDI) in Panama between 2005
According to Indesa, all indications are that the flow of FDI
and 2007 represented an average of 17.5% of GDP.
will continue to grow strongly in the mid-term, unless the
However, according to an estimate from economic
global economic downturn affects international investments.
consulting firm, Indesa, that will increase dramatically to 52.3% by 2011. In addition, the United Nations
Panama ranks 12th out of 29 countries in the Americas in
Conference on Trade and Development (UNCTAD)
terms of economic freedom and its overall score is higher
anticipated recently that in spite of the economic crisis in
than the regional average. It also scores well in terms of
the US, FDI in Latin America, including Panama, will
business, financial and investment freedom and government
continue to grow in 2008.
size. Personal and corporate income tax rates are moderate, and overall tax revenue is low as a percentage
This is confirmed by government figures for FDI inflows
of GDP. The government welcomes foreign capital and
during Q1 of 2008, which reached US$1.1 billion,
imposes only minor restrictions on investments.
representing an increase of 32.8% on the same period in 2007. The increases are primarily due to investments by banks and utilities of general licence operating in the country. Other areas that have attracted increased volumes of foreign investment during the past year are construction, the expansion of port facilities and new mobile phone companies entering the Panamanian market.
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WTO Member: Since 1997 Political System: Presidential Multi-Party Republic Ruling Party: Socialist PRD Next General Election: 2009
Political Situation
& Stability Since the overthrow of military dictator, General Noriega in 1989, Panama has become a stable democracy and is a presidential republic. The president, elected for a 5-year term, is both head of state and the government, which has a multi-party system. There is no prime minister but two vicepresidents (although this will change at the next election). The last presidential and legislative elections took place in May 2004 and MartĂn Torrijos, leader of the left-leaning Partido Revolucionario Democratico (PRD) was elected President. The PRD have a majority in the Legislative Assembly. The next Presidential election will be in May 2009.
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Tourism Numbers (First 9 months 2008): 1 million Tourism Contribution to GDP (2008): 12.1%
Tourism According to the World Travel & Tourism Council (WTTC), the contribution of the Travel and Tourism industry (T&T) to Panama’s GDP is expected to rise from the current 12.1% to 13% by 2018, with real GDP growth averaging 4.7% a year over the next 10 years. tourism currently accounts for 11.6% of total employment, around 1 in 9 jobs. According to the Tourism Authority of Panama (PTA), more than 1 million tourists visited Panama in the first 9 months of 2008, exceeding the year-on-year record by 13.1%. Panama’s Master Plan for Sustainable Tourism Development 2007-2020 should become the main focus of tourism development over the next 12 years. The plan requires an investment of US$741.1 million. As part of the plan, Panama’s Minister of Tourism has been negotiating with a range of European airlines for more direct flights to Panama, in an effort to diversify from the US and increase the number of European tourists visiting the country. Panama is ranked 90 out of 176 in terms of absolute size and 64 in terms of relative contribution to the national economy.
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Tourism Contribution to Employment (2008): 11.6 % World Ranking: 64/176 (contribution to national economy)
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Infrastructure US$5.3 billion to be invested in the Panama Canal expansion 52% increase in construction sector investment between 2007 and 2008 US$215.8 million invested in the Panama City-Colon City highway Panama’s major infrastructure project is the massive
Panamanian territory parallel to the Panama Canal.
expansion of the Panama Canal, which will require some
US$215.8 million has been invested in the project which
US$5.3 billion of investment (around 30% of GDP) and
will be completed in 2009.
will be completed by 2014. The expansion will more than double the Canal’s capacity and it is predicted to have a
Infrastructure improvements have encouraged foreign
dramatic effect on the country’s economy. It has already
investors such as Marriot and Donald Trump to invest in
prompted an increase in foreign investment funds into the
new hotels in Panama City. There are also 4 major
country.
shopping malls in Panama City, all of which have been built since 2004 at a cost of around US$100 million each.
Panama is part of the huge inter-oceanic highway project,
The construction sector is booming, with a 52% increase in
which will link the oceans of South America. The 80 km
investment between 2007 and 2008.
Panama City-Colon City highway will cross all
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The Panamanian government have recently extended its 20-year property tax exemption for foreign investors. Capital Growth (2007): 20% Average Annual Rental Yield: 11% (Panama City)
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Property
Market
Panama has been experiencing a property market boom
paying taxes on property transactions carried out in Panama
since around 2003. This is mainly due to increased interest
until 2030.
from foreign investors, particularly retirees from the US as well as attractive low entry costs, high rental yields and high
In the Jones Lang LaSalle Transparency Index 2008,
capital appreciation. Between 2003 and 2006, price rises
Panama ranked 9th in the largest transparency score
were around 25% per year and during 2007, around 20%,
changes 2006 to 2008. Panama increased its scores in
particularly on new projects and beach properties. Panama
4 out of 5 categories and now ranks 6th in transparency
has become an increasingly attractive retirement destination
among Latin American countries. Over the last few years,
because of the country’s economic and political stability, low
large multinational corporations have established their
cost of living, mild climate and its central location within the
regional offices in Panama, leading to the development of
Americas.
large office projects and in turn improving the quantity and quality of real estate information.
The Panamanian government have made the country even more attractive with the recent extension of its 20-year property tax exemption for foreign investors. The exemption applies to projects whose building permits are issued before the end of 2009 and frees international investors from
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Secondary
Market
The population of Panama is just over 3 million, but
The minimum wage in Panama is much lower than in
increasing numbers of foreigners (particularly those from
most first world countries, which means that the cost of
North America) are choosing to live and retire to
living is very low, making it an attractive option for
Panama. The world’s largest circulation consumer
foreign retirees. Many retirees choose to rent property
magazine, the AARP’s, Modern Maturity, has consistently
long-term and rental yields, particularly in Panama City,
ranked Panama as ‘one of the best retirement
are very high – higher than 11% for 190 square metre
destinations on the planet’. Part of the reason is that there
units.
are no taxes on foreign earned income for those that retire to Panama, which is having a direct impact on the number of second-home buyers. International Living rates Panama 3rd in the world’s top retirement havens in 2008.
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The world’s largest circulation consumer magazine has consistently ranked Panama as ‘one of the best retirement destinations on the planet’.
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Mortgage
Market Panama leads Latin America in the mortgage market, with the most developed market in the region. According to a study by the Spanish Central Bank, Banco de Espaùa, mortgages in Panama account for around 24% of GDP, considerably higher than just 8% of GDP in other Latin American countries. Panama’s booming economy and low-tax regime are just 2 factors which have resulted in growing mortgage demand from foreigners. As a result of this demand, mortgages for foreign buyers are relatively easy to obtain. Mortgage products are variable, although there is still a lack of choice and competition. Mortgage interest rates range from 6.5% to 8%, with a typical loan-to-value rate of between 70% and 75%, while mortgage terms are between 20 and 30 years. The mortgage application process usually takes between 30 to 60 days.
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Panama’s economy is inextricably linked to that of the US and although the country has so far escaped any major effects of the US recession, the possibility of a knock-on effect is a market risk.
Market
Risks
Property investment into emerging markets may carry
Panama’s economy is inextricably linked to that of the US
some degree of risk. However, the degree that market
and although the country has so far escaped any major
risk in a particular country affects a property investment
effects of the US recession, the possibility of a knock-on
depends largely on thorough due diligence conducted
effect is a market risk.
prior and during the purchase process. Foreigners can buy properties in all areas of Panama, Along with many Latin America countries, Panama
except the islands and properties located within 10km of
is struggling to control corruption and trying to
the frontiers. Not all property in Panama has legal title
generate educational reform to reduce its high poverty
and many beachfront and island properties are owned
rate. Panama is endeavouring to shake off its reputation
by national or local government and possession rights
as major trans-shipment point for US bound drugs and
(derecho posesorio) only can be obtained. It is advisable
illegal immigrants, and as a haven for money laundering,
to buy titled properties rather than properties with
which results in inevitable corruption among poorly-paid
possession rights and to use the services of an
government officials. In 2004, Panama’s President was
experienced lawyer to verify the status of any investment.
elected on a “zero corruption” campaign platform and
In the case of a property with possession rights only, you
his administration has made significant efforts to combat
should exercise extreme caution.
government corruption.
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Purchase Process Panama’s laws and legal processes may be very different from what you are used to and Obelisk strongly recommends that independent legal advice be taken during a property purchase. Foreigners can buy either titled properties or properties with “possession rights� (derecho posesorio). Only titled properties may be mortgaged.
Purchase Process for a titled property: A lawyer should complete due diligence on the property. Buyer and vendor sign a Promise to Purchase Agreement to secure the property. Once all the checks are made, both parties sign a Purchase and Sale Agreement, which must be registered at the Public Registry Office. Payment is not made to the vendor until transfer of ownership has been registered.
Purchase Process for Possession Rights property: Your lawyer ensures possession rights are issued by the correct authorities along with a full description. The purchase process is similar to that for titled properties but contracts are not lodged at the Public Registry Office. After all monies have been paid, the buyer receives a Certificate of Rights of Possession in their name,
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authenticated by a Notary Public.
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Investment Costs Panama’s taxation is complex and subject to change. You are therefore recommended to take expert and up-to-date advice on taxation issues affecting the purchase and ownership of property in Panama. The costs of a standard property purchase in Panama are relatively low and may include the following (all percentages are of the property price): Lawyer and Notary fees are approximately 2%, paid by the buyer. Registration fees are 0.25%, paid by the buyer. Estate Agent’s fees are usually between 3% and 5%, payable by the vendor. Transfer tax is 2% and also paid by the vendor. All land (titled or untitled) valued above US$30,000 is subject to a 2.1% tax. There is a 20-year property tax exemption for foreign investors. Properties with building permits are issued before 31st December 2009 are exempt. Capital Gains Tax is levied at a rate of 10% for both individuals and corporations, provided they are not real estate professionals.
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Summary The following summary provides key highlights to consider when investing in Panama’s property market: According to the IMF, Panama was one of the
The Panama Canal expansion will more than
fastest growing economies in the world in 2007
double the Canal’s capacity and have a
with real growth rising to 11.2%.
dramatic effect on the country’s economy.
Panama’s currency is the balboa (PAB) which
Panama has become an increasingly attractive
has parity with the US dollar.
retirement destination.
Government figures for FDI inflows during Q1 of
Increasing numbers of foreigners (particularly
2008 reached US$1.1 billion, representing an
those from North America) are choosing to live
increase of 32.8% on the same period in 2007.
and retire to Panama.
There is a 20-year property tax exemption for
Capital appreciation is around 20% per annum.
foreign investors. Properties with building permits issued before the end of 2009 are exempt.
Titled and untitled properties have different purchase procedures.
Since the overthrow of military dictator, General Noriega in 1989, Panama has become a stable democracy and is a presidential republic. According to the tourism authorities, more than 1 million tourists visited Panama in the first 9 months of 2008, exceeding the year-on-year record by 13.1%.
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Investment costs are low.
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The Absolute Guide Series Rating
Based on our extensive research, Obelisk has introduced a 5 star rating system to summarise the investment potential of a country. The availability of finance, economic stability, political stability, the strength of the local market to provide an exit strategy and the potential to earn from investment are the key criteria that determine the investment grade of each country.
Verdict Panama is a fairly recent arrival on the overseas property investment scene, but in the last few years, property in the country has seen some spectacular capital yields. There would appear to be no signs that the property market will slow down in the near future. Intense construction in the country means that a lot of prime land has already been purchased and developed, but any available new land represents a prime investment opportunity. As well as a good market for new property, Panama also offers an excellent resale market, fuelled by a steady demand from international retirees drawn to the country’s favourable low tax rates. This demand for new and resale housing in Panama together with a good existing mortgage market makes Panama a promising investment location. Based on thorough research we have carried out on Panama, we at Obelisk believe that Panama currently represents a very promising option for overseas property investment and one worthwhile exploring.
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Obelisk
Awards Obelisk ‘International Property Specialist 2008’
Advantage
Voted International Property Specialist of the Year 2008 by Business Britain magazine, Obelisk has been recognised as the authoritative voice within the industry and its clients benefit from the company’s uncompromising high standards and professionalism. Obelisk has identified a simple and transparant purchase process for its clients as a simple, four step process: 1.
The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.
2.
An independent lawyer, sourced and appointed for the client by Obelisk, will have already carried out full due diligence on the project. They will issue all purchase contracts and paperwork to the client.
3.
On receipt of this contract, the client will sign and make the first payment. The lawyer will notify the client of all further payments when required.
4.
The appointed lawyer will also represent the client in all aspects legally required within the country of purchase, ensuring that clients of Obelisk enjoy the benefits of simple and hassle-free real estate investment.
For more information about Obelisk’s investment opportunities in Panama, contact us now on info@obeliskinternational.com, visit our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).
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Disclaimer The material contained within this document has been prepared for information purposes only. Information contained herein is not to be relied upon as a basis of any contract or commitment. The information is not to be construed as an offer, invitation or solicitation to invest and opinions expressed are based on market conditions at the time of print and may be subject to change without prior notice. Information contained herein is believed to be correct, but cannot be guaranteed. In case of queries or doubt you should consult an independent investment adviser. No personal recommendation is being made to you and the past is not necessarily a guide to the future. The brochure in its entirety – text, images, marks, graphics, logos, buttons, combinations of colours, and the structure, selection, ordering and presentation of its content – is protected by the legislation on intellectual and industrial property, it being forbidden to reproduce, distribute, publicly disseminate or transform it, except for personal private use. It is also forbidden to reproduce, relay, copy, assign or broadcast, in whole or in part, the information contained in this brochure, for whatever purpose and by whatever means, without written consent.
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Call us free from UK: Tel. 0808 160 0670 Call us free from Eire: Tel. 1800 932 514 For general and international enquiries contact us at: Tel: (0034) 952 820 319 Fax: (0034) 952 825 790 Alternatively you can email: info@obeliskinternational.com or visit: www.obeliskinternational.com